Special Partnership transactions and LLC,LLP

19 terms by guamdre 

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Sale or exchange of a partnership interest

Generally is treated as the sale or exchange of a capital asset (capital gains or losses)

Unrealized receivables and inventory

on the sale or exchange, the partner's share of unrealized receivables and inventory is treated as ordinary income

Unrealized receivables

Include receivables not previously included in gross income, property holding ordinary income potential under the depreciation recapture provisions of the IRS, and a franchise, trademark, or trade name

Gain or loss on sale or exchange

The capital gain or loss will be long or short term depending on the length of the period in which the seller has owned the interest in the partnership, if the partners entire interest is sold, then profits and losses up to the date of the sale must be considered and these are treated as ordinary income

Liquidation and retirement of a capital interest

a partner realizes a gain on the liquidation of a partnership interest when the partnership's basis in the property distributed is more than the partner's investment in the partnership, a gain is recognized only in the amount of cash received in excess of the basis, the basis of all other property received is zero, the gain is a capital gain

Cash received

if the cash received is less than the basis of the partner's interest, no gain is recognized, the basis of all other property received is equal to the basis of the partner's interest minus the cash received, the basis is allocated first to appreciated properties then others

Loss on liquidation

a loss is realized when the property distributed is less than the partner's investment in the partnership, the property must be cash, unrealized receivables or inventory to recognize a loss, the basis of other property is equal to its basis in the partnership increased by the loss not recognized

Guaranteed payments

These future payments can be determined without reference to future income and are considered ordinary income to the retiring partner and are deductible expenses to the partnership

Distribution share

These future payments are going to be based on the partnership's future income, and they will be treated as a distribution of partnership income, ordinary income to retiring partner and a reduction in the distributive share of the other partners.

Payments to deceased partner's successors

Generally the successor steps into the shoes of the decedent and any amounts received by the successor are taxed in the same way they would have been taxed to the deceased partner

Sale of property to the partnership by a partner

Treated as an arm's length transaction, gains and losses are recognized by the partner and the basis is the cost to the partnership

Exceptions on sales of property to the partnership by aprtner

No loss is recognized when the partner has more than a 50% interest, or between two partnerships with more than 50% owned by the same person

Merger or split-up of partnership

New partnership is whoever owns more than 50% of capital and profits, or whoever provides the greatest dollar value of assets, if neither test can be satisfied then a new partnership will result

Family partnerships

Children and other close relatives are frequently made members of a family partnership in an attempt to split the business income between more taxable units, and these are only recognized when there is a valid bona fide transfer of the partnership interest and the family member actually controls the interest

Minor child

A trustee may be appointed to manage a minor child's interest

Capital-oriented business

Capital is a material income producing factor, the interest may be established by either purchase or gift, working partners must be reasonably compensated, and the share of income to others must be proportionate to partnership interest

Service-oriented business

A family member will generally be recognized as a partner only if the family member performs a vital services for the partnership

LLC

Limited liability companies, formed under state law to provide the owners with limited personal liability, single owner treated as a sole proprietorship, multiple owner treated as a partnership, unless they elect to be treated as a corporation

LLP

Limited liability partnerships, are partnerships for legal and income tax purposes, liable only for commercial debt and their own malpractice, not partners

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